The UK Government recently published a response addressing the questions relating to Multi-Purpose Interconnectors (MPIs) in last year's consultation "Offshore Transmission Network Review: Enduring Regime and Multi-Purpose Interconnectors". See our article Offshore Transmission Network Review for a summary of that consultation. 

The response addresses four main areas of concern that stakeholders highlighted.

A legislative framework for MPIs: the existing legislative framework makes a distinction between transmission assets and traditional interconnectors. This is too restrictive for MPIs, which combine both transmission and interconnection elements. The legislation needs to be flexible to recognise that the design of MPIs is still evolving and that the balance between transmission and interconnection may change for an individual MPI asset over its lifetime. 

In response, the UK Government intends to add a new licensable activity into the Electricity Act 1989 for the operation of a Multi-Purpose Interconnector, when Parliamentary time allows. It is also considering whether a new definition of an MPI asset is necessary.

As a short-term solution, Ofgem is developing an interim model for MPIs which involves amending licence conditions for both the interconnector led and OFTO led approaches. See our separate article for more detail on this.

MPIs in policy schemes: the current policy schemes, such as Cap and Floor, which requires an interconnector licence, and Contracts for Difference (CfD), which requires a transmission licence, are not currently suitable for MPI development and need to be adapted.

To enable early opportunities MPIs, Ofgem will run a pilot Cap and Floor scheme, where the multi-purpose asset will be licensed as an interconnector (see Ofgem's Interconnector Policy Review Decision December 2021). This is expected to open for applications in the second half of 2022.

The lessons learnt from the pilot scheme will aid the Government in the development of an enduring MPI regime.

Marine and special planning: lack of legal clarity makes it difficult for the different elements of MPI projects, such as licensing, funding, and ownership, to interact. 

Current legislation, such as the Marine and Coastal Access Act 2009, does not expressly reference MPIs. Different requirements apply to traditional interconnector cables and transmission cables connected to renewable generation assets. Consideration must also be given to the UK's international obligations, for example, under the United Nations Convention on the Law of the Sea (UNCLOS).

The UK Government's initial view is that MPIs will be subject to marine licensing as offshore transmission cables and that no other changes to the existing framework are necessary. Defra will issue guidance to the industry once a final decision is reached.

EU market arrangements: since MPIs will be connecting GB with neighbouring countries, it is important that domestic legislation is compatible with that of the connecting states and the EU. The key areas for alignment are: 

• cross-border trading arrangements – implicit trading, whereby the transmission capacity is auctioned along with respective volumes of electric energy, would be more efficient for operating MPI assets, and is preferable to the current method of explicit trading, under which the transmission capacity is auctioned separately from electric energy;
• capacity to be made available – the EU legislation[1] requires that at least 70% of the total interconnected capacity must be made available for cross border trade; this would limit the available capacity of the offshore wind farm to just 30% of total interconnector capacity. The 70% requirement is no longer part of the domestic law which has been amended following UK's exit from the EU;
• market models for MPIs – the two market models used in the EU present challenges for MPIs: 
  • under the "Home-Markets" (HM) model, parties must forecast, based on wind speeds, the capacity for offshore wind connected to the MPI. Under-forecasting may result in costly remedial actions; and over-forecasting may result in underutilisation of the interconnection capacity; 
  • under the "Offshore Bidding Zone" (OBZ) model, overall utilisation is optimised, but revenues of wind farms may be reduced, discouraging investment. Since CfD payments are based on GB day-ahead hourly prices, the impact of windfarms in an OBZ on price protection under CfD must also be considered.

Government has committed to collaboration with the EU under the UK-EU Trade and Cooperation Agreement (TCA) and to bilateral collaboration with neighbouring states.

Under the TCA, new trading arrangements will be developed for all relevant timeframes (forward, day-ahead, intraday and balancing). Priority will be given to developing technical procedures for a new form of implicit allocation of capacity on electricity interconnectors, including MPIs, at the day-ahead market timeframe based on the concept of "multi-region loose volume coupling" (MRLVC).

There will be further clarity on the application of the 70% requirement and the market models for MPIs. Government believes that the HM and OBZ models could co-exist, if arrangements were made compatible.

The UK Government will also consider the participation of MPI assets in the GB Capacity Market.

A response to the Enduring Regime part of the consultation is expected later this year.